TELSTAR MANUFACTURING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY EN BANC TELSTAR MANUFACTURING CTA EB No. 1797 CORPORATION, (CTA CASE No. 8900) Petitioner, -versus- COMMISSIONER OF INTERNAL REVE NUE, Respondent. x--------------------------------x COMMISSIONER OF INTERNAL CTA EB No. 1879 (CTA CASE No. 8900) REVENUE, Petitioner, Present: DEL ROSARIO, P.J., -versus- CASTANEDA, JR., UY, FASON-VICTORINO, MINDARO-GRULLA, TELSTAR MANUFACTURING RINGPIS-LIBAN, and CORPORATION, MANAHAN, JJ. Respondent. Promulgated: APR 1s� 2019 x------------------------------------------ ~- ~-- ~:~~~~ DECISION MINDARO- GRULLA, J .: Submitted for decision are the Petitions for Review for the Court En Bane under Section 4(b), Rule 8 1 of the 2005 1 SEC . 4. Where to appeal; mode of appeal. - XXX XXX XXX (b) An appeal from a deci sion or resolution of the Court in Division on a motion for reconsideration or new trial shall be taken to the Court by

Telstar Manufacturing Corporation vs. CIR Page 2 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION Revised Rules of the Court of Tax Appeals (RRCTA), as amended: a. filed by Telstar Manufacturing Corporation (Telstar), of the Decision dated August 18, 20172 and the Resolution dated February 8, 2018; 3 and b. filed by the Commissioner of Internal (CIR), of the above-mentioned Resolution dated February 8, 2018 and the Resolution dated June 4, 2018; 4 all rendered by this Court's former Second Division, the dispositive portions of which read as follows: Decision dated August 18, 2017: "WHEREFORE, the present Petition for Review is DENIED. Petitioner is ORDERED to pay basic deficiency income tax, value-added tax and expanded withholding tax for the year 2009 in the aggregate amount of P18,061,826.06, inclusive of the 25% surcharge imposed under Section 248(A)(3) of the NIRC of 1997, as amended, detailed as follows: Tax Type ,.Basic Deficiency ,.Surcharge Total Income Tax 2,891,062.57 722,765.64 ,. 3,613,828.21 Value-added tax 11 525,666.27 WT-Expanded 32,732.01 2 881,416.57 1'L407 ,082.84 TOTAL ,. 1'L449,460.85 40,915.01 ,. 8,183.00 3,612,365.21 ,. 18,061,826.06 In addition, Petitioner is ORDERED to pay: petition for review as provided in Rule 43 of the Rules of Court. The Court en bane shall act on the appeal. XXX XXX XXX 2 Penned by Associate Justice Juanita C. Castaneda, Jr., concurred in by Associate Justice Caesar A. Casanova and Associate Justice Catherine T. Manahan, En Bane No. 1797 Docket, pp. 48-106. 3 Ibid., En Bane No. 1879, pp. 13-33. 4 Ibid., pp. 34-40.

Telstar Manufacturing Corporation vs. CIR Page 3 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION (a) Deficiency interest at the rate of 20% per annum on the basic deficiency income tax, value- added tax and expanded withholding tax, computed from April 15, 2010, January 25, 2010 and January 15, 2010, respectively, until full payment thereof pursuant to Section 249(8) of the NIRC of 1997, as amended; and (b) Delinquency interest at the rate of 20% per annum on the total amount of P18,061,826.06, representing the sum of the basic deficiency income tax, value-added tax and expanded withholding tax in the aggregate amount of P14,449,460.85 and 25% surcharge of P3,612,365.21, and on the deficiency interest which have accrued as aforestated in (a), computed from August 29, 2014 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended. SO ORDERED." Resolution dated February 8. 2018: "WHEREFORE, petitioner's Motion for Partial Reconsideration is PARTLY GRANTED. Accordingly, the dispositive portion of the assailed Decision of this Court dated August 18, 2017 is MODIFIED as follows: "WHEREFORE, the present Petition for Review is PARTLY GRANTED. Petitioner is ORDERED to pay basic deficiency income tax, value-added tax and expanded withholding tax for the year 2009 in the aggregate amount of P7,455,067.03, inclusive of the 25% surcharge imposed under Section 248(A)(3) of the 1997NIRC, detailed as follows: Tax Type Basic Deficiency Surcharqe Total Income Tax p 2,804,113.22 p 701,028.30 p 3,505,141.52 Value-added tax WT-Expanded 3,127,208.39 781,802.10 3 909 010.49 TOTAL 40,915.01 32 732.01 8,183.00 p 5,964,053.62 p 1,491,013.41 p 7,455,067.03

Telstar Manufacturing Corporation vs. CIR Page 4 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION In addition, Petitioner is ORDERED to pay: (a) Deficiency interest at the rate of 20% per annum on the basic deficiency income tax, value-added tax and expanded withholding tax in the amounts of P2,804,113.22, P3,127,208.39 and P32,732.01, respectively, computed from April 15, 2010, January 25, 2010 and January 15, 2010, respectively, until full payment thereof pursuant to Section 249(8) of the 1997 NIRC; and (b) Delinquency interest at the rate of 20% per annum on the total amount of P7,455,067.03, representing the sum of the basic deficiency income tax, value- added tax and expanded withholding tax in the aggregate amount of P5,964,053.62 and 25% surcharges of P1,491,013.41, and on the deficiency interest which have accrued as aforestated in (a), computed from August 29, 2014 until full payment thereof pursuant to Section 249(C) of the 1997 NIRC." Petitioner's Manifestation with Motion for Correction of Dispositive Portion of Decision is NOTED. SO ORDERED." Resolution dated June 4, 2018: "WHEREFORE, respondent's Motion for Partial Reconsideration is DENIED for lack of merit. SO ORDERED."

Telstar Manufacturing Corporation vs. CIR Page 5 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION Thus, respondent CIR filed the Petition for Review5 dated June 21, 2018, which is docketed as CTA EB No. 1879. On July 2, 2018, this Court issued an Order for the consolidation of CTA EB No. 1879 with CTA EB No. 1797. On January 11, 2019, this Court issued a Resolution stating that the said consolidated cases are now deemed submitted for decision. The facts of the case, as recited by the former Second Division in its Decision, read as follows: "Petitioner (Telstar Manufacturing Corporation) is a corporation organized under Philippine laws with principal place of business located at 103 South Science Avenue, Laguna Technopark, Sta. Rosa, Laguna. It is engaged in the business of manufacturing, distribution, buying and selling of pharmaceutical, veterinary compounds, toilet articles and general merchandise. XXX XXX XXX On the other hand, respondent is the duly appointed Commissioner of Internal Revenue (CIR), vested by law to implement and enforce the provisions of the 1997 NIRC and other tax laws. On May 27, 2010, petitioner was served with Letter of Authority No. 116-2010-00000096 dated May 14, 2010 for the examination of its internal revenue taxes pursuant to the Conglomerate Audit Program (RMC No. 36-2010) for taxable year ending December 31, 2009. On June 7, 2010, the BIR issued its First Notice for Presentation of Books of Account and Other Accounting Records, copy of which was received by petitioner on June 8, 2010. 5 CTA EB No. 1879 Docket, pp. 1-12.

Telstar Manufacturing Corporation vs. CJR Page 6 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION On August 5, 2010, the BIR issued its Second Notice for Presentation of Books of Account and Other Accounting Records, copy of which was received by petitioner on August 19, 2010. Petitioner submitted the documents to the BIR as evidenced by its transmittal letters with the following dates: � June 11, 2010 � July 7, 2010 � September 30, 2010 � February 17, 2011 � March 3, 2011 � March 13, 2013 On June 13, 2013, petitioner received from the BIR a Preliminary Assessment Notice (PAN) with attached Details of Discrepancy, assessing the company for deficiency income tax, improperly accumulated earnings tax, VAT, EWT, and documentary stamp tax. On July 3, 2013, petitioner filed with the Large Taxpayers Audit Division 1 its Response to the abovementioned PAN. On October 16, 2013, the BIR issued a Formal Letter of Demand (FLD) with Details of Discrepancy and Final Assessment Notices (FAN), which were received by petitioner on the same date. On November 13, 2013, which is within thirty (30) days from receipt of the FLD/FAN, petitioner filed its Protest to the Final Assessment Notice together with supporting documents. On August 29, 2014, petitioner received a copy of respondent's Final Decision on Disputed Assessment (FDDA) with Details of Discrepancy.

Telstar Manufacturing Corporation vs. CIR Page 7 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION On September 26, 2014, petitioner filed the present Petition for Review. XXX XXX XXX" The former Second Division ruled in the assailed Decision herein that while the assessment was made beyond the three-year period prescribed in Section 2036 of the 1997 National Internal Revenue Code (NIRC), as amended, the Waivers7 executed by Telstar's President and General Manager validly extended the period within which the government may assess it of its deficiency tax liabilities for taxable year 2009, as provided for under Section 222(b)8 of the 1997 NIRC from three (3) to ten (10) years. The former Second Division ruled that the said Waivers were defective in line with the Supreme Court case of Commissioner of Internal Revenue vs. Next Mobile Inc. (formerly Nextel Communications Phils. Inc.) (the "Next Mobile Case")/ that both parties are in pari delicto and that Telstar is likewise estopped from challenging the validity of the said waivers. 6 SEC. 203. Period of limitation upon assessment and collection. - Except as provided in the Section 222,internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided That in a case where a return is filed beyond the period prescribed by law, the three-year period shall be counted from the day the return was filed. For purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. 7 CTA EB No. 1797 Dockets, Vol.!, pp. 338-338. 8 SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. - XXX XXX XXX (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. 9 G.R. No. 212825, December 7, 2015.

Telstar Manufacturing Corporation vs. CIR Page 8 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION Further, the former Second Division ruled that while Telstar is not liable for compromise penalties, it is liable for deficiency income tax (IT), valued-added tax (VAT), and expanded withholding tax (EWT). As to deficiency income tax, the CIR based Telstar's deficiency IT on the following: Discrepancy on Sales ,. 230 574.03 Discrepancies on purchases - undeclared Overclaimed/underdeclared expenses 203,547.27 Disallowed expenses for non-withholdinq 26,082,570.24 2,326 691.88 However, the former Second Division cancelled the undeclared discrepancies on purchases and decreased the amount of overclaimed/undeclared expenses from P26,082,570.24 to P7,020,352.18. The CIR also deducted the following available creditable withholding taxes (CWT) of Telstar: Disallowed CWT - from 2008 sales ,. 17,777.14 Overclaimed CWT Total 1,291.25 p 19,068.39 However, the former Second Division cancelled the above-mentioned overclaimed CWT, leaving the amount of deficiency IT of Telstar to P2,891,062.57, computed as follows: Taxable Income per ITR ,. 84,383,759.00 9,577,618.09 ,. Add (Deduct): Audit adjustments per Investiqation 230,574.03 Discrepancy on Sales ,. 93 961,377.09 ,. 28,188,413.13 Overclaimed/underdeclared expenses 7,020,352.18 Disallowed expenses for non-withholding 2,326,691.88 Total adjustments per audit Taxable income per audit Income tax due thereon Less: Creditable Withholding Tax/Tax paid per audit Tax Paid 1'17,722,778.85 Add: Creditable Tax 7,592,348.85

Telstar Manufacturing Corporation vs. CIR Page 9 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION Total creditable tax I 1>25,315,127.70 Less: Adjustments per audit in creditable withholding tax Disallowed CWT- from 2008 sales l 17,777.14 25,297,350.56 P2,891,062.57 Basic income tax deficiency As to deficiency VAT, the CIR based Telstar's liability on the following: DiscreQ_ancy on sales p 230,574.03 Discrepancy on purchases 203 547.27 Overclaimed/Underdeclared expenses Proceeds from sale of property per cash flow 26,082,570.24 5,610. 71 Since the Court in Division upheld the discrepancy of sales in the amount of P230,574.03, such was also subjected to VAT by the Court. On the other hand, the former Second Division cancelled the discrepancies on purchases and expenses amounting to P203,547.27 and P26,082,570.24, respectively, since the imposition thereof has no basis, and there was no proof that there were sales or receipts coming from the said purchases and expenses. On the other hand, the Court in Division upheld the creditable input tax carried from the previous period in the amount of P3,465,303.49, while increasing the input tax on purchases from P58,920,863.99 to P65,038,027.67 as per quarterly VAT returns for the year 2009 of Telstar. The assessed deduction of the input taxes carried over to the succeeding period in the amount of P1,316,192.04, was reduced to P973,603.37, by cancelling the amount of P342,588.67 excess input taxes since this amount was not explained in the FLD or FDDA. The disallowed input taxes of P2,918,401.80 was scrutinized since out of the total input taxes examined in the amount of P65,038,027. 78, P20,855.82 are without proper supporting documents, thus: 10 Particulars Amount With proper supporting documents p 54,376,653.96 10 Exhibit "P-75", p. 12, Docket Vol. II, p. 436.

Telstar Manufacturing Corporation vs. CIR Page 10 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation 10,640 518.00 CTA EB No. 1879 (CTA Case No. 8900) 20,855.82 DECISION P65,038,027 .78 In_j)_ut VAT from importation Without proper supporting documents TOTAL However, the amount of P10,640,518.00 for input VAT from importation was further disallowed for failure of Telstar to submit evidence to refute the CIR's findings that the purchases pertaining to such amount are unsupported, leaving only P54,376,653.96. From the rema1n1ng, P627,816.97 was disallowed for the following reasons: Particulars Amount Supported by Statement of Charges Supported by invoices/ORs dated outside the p 8,598.21 period Supported by undated invoices/ORs 534,025.25 Supported by an OR issued not in the name of 83 594.55 petitioner 1 598.96 TOTAL p 627,816.97 Thus, petitioner's deficiency VAT liability amounting to P11,525,666.27, was computed as follows: Net sales per VAT returns ,. 733 791 481.66 236,184.74 Add (Deduct): Audit adjustments per investigation p 734,027,666.40 Discrepancy on sales p 230 574.03 12% 5 610.71 Proceeds from sale of propertv per cash flow p 88 083 319.97 ,. 3 465 303.49 Taxable sales per audit 65,038 027.67 -- 68 503 331.16 Tax rate .___j (11 289 190.79) Output tax per audit 1"57 214,140.37 j Less: Creditable input tax (973 603.37) Carried from previous period, including input taxes on capital goods exceeding P1Million Input tax on purchases Total Less: Audit adjustments per investigation Disallowed IT on unsupported expenses: p (20 855.82) a) Per !CPA findings b) Per Court's findings: (10 640 518.00) 1) Unsupported input taxes on (627 816.97) importation 2) Input taxes not properly substantiated Total available input taxes Less: Input taxes on ca~ital goods

Telstar Manufacturing Corporation vs. CIR Page 11 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation 56,240 537.00 CTA EB No. 1879 (CTA Case No. 8900) I' 31 842 782.97 DECISION 20 317 116.70 exceeding P1Million deferred to I I toll 525 666.27 succeeding period Total allowable input tax VAT Payable Less: VAT paid per returns Basic VAT deficiency As to deficiency EWT, since the Court in Division upheld the disallowed expenses for non-withholding in the amount of 1'>2,326,491.88, the Court ruled that Telstar should be held liable to pay deficiency EWT in the amount of 1'>32,732.01, computed as follows: Payments to supplier of goods Income Tax Rate EWT Service contractors Payments 1% p 13,868.09 Professional fees p 1,386,808.90 2% Total 15% 18 782.85 939 142.53 81.07 540.45 1"32.732.01 1"2,326,491.88 In sum, Telstar was made liable to pay the basic deficiency tax, computed as follows: Tax Type Basic DeficiencY Income tax p 2 891 062.57 Value-added tax 11,525 666.27 WT-Expanded 32 732.01 TOTAL ,. 14.449.460.85 In its February 8, 2018 Resolution, the Court in Division upheld the validity of the Waivers. However, the Court in Division cancelled the discrepancies on sales in the amount of 1'>230,574.03, consequently cancelling the IT and VAT therein. Telstar also contested the reduced overclaimed/ underdeclared expenses in the amount of 1'>7,020,352.18. Telstar admitted that an incorrect name and TIN of Mercury Group of Companies, Inc. were reported in the alpha list, when as per finding in the independent certified public accountant (!CPA) report that the payment was actually made to Cash-Vivian Que-Azcona for the year 2008 profit sharing. However, the Court in Division sustained such

Telstar Manufacturing Corporation vs. CIR Page 12 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION findings since Telstar, aside from the admission of error in reporting the correct name and TIN in the alphalist, did not submit additional documents to clarify the nature of the claimed expense. The Court in Division likewise upheld the Deficiency EWT of P32,732.01 and deficiency IT on related disallowed expense of P2,326,691.88. However, the Court cancelled the deficiency IT on disallowed 2008 CWT of P17,777.44, since, according to the former Second Division, the FDDA did not provide a breakdown of the disallowed CWT, and thus said item of assessment was declared void. In sum, Telstar's deficiency IT was reduced, computed as follows: Taxable Income per ITR p 84,383,759.00 Add (Deduct): Audit adjustments per Investigation 9,347,044.06 p 93,730,803.06 Overclaimed/underdeclared expenses 7,020,352.18 P28,119,240.92 Disallowed expenses for non-withholdinq 2,_326,691.88 P25,315,127.70 Total adjustments per audit P2,804,113.22 Taxable income per audit Income tax due thereon Less: Creditable Withholding Tax/Tax paid per audit Tax Paid P17,722,778.85 Add: Creditable Tax 7,592,348.85 Total creditable tax P25,315,127.70 Basic income tax deficiency With respect to deficiency VAT, as mentioned earlier, the assailed Decision disregarded the disallowed input taxes of P2,918,401.80 and instead deducted P20,855.82 that are without proper supporting documents, the amount of P10,640,518.00 for input VAT from importation and the amount of P627,816.97 for improper substantiation. However, upon reconsideration of the Court in Division, it ruled that when these amounts are put together, they exceed the disallowance made by the CIR in the amount of P2,918,401.80. Hence, the Court in Division was compelled to uphold the amount as computed by the CIR, adjusting the amount of VAT, to wit: c

Telstar Manufacturing Corporation vs. CIR Page 13 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION Net sales per VAT returns p 733 791 481.66 Add (Deduct): Audit adjustments per investigation Proceeds from sale of Propertv per cash flow 5 610.71 236 184.74 p 733 797 092.37 Taxable sales per audit Tax rate 12% p 88 055 651.08 Output tax per audit Less: Creditable input tax p 3 465 303.49 65 038 027.67 Carried from previous period, including input taxes on capital 68,503 331.16 goods exceeding P1Million Input tax on purchases (2 918 401.80) ~- 1"65 584 929.36 Total Less: Audit adjustments per investiaation (973 603.37) Disallowed IT on unsupported expenses: 64 611 325.99 p 23 444,325.09 Total available input taxes Less: Input taxes on capital goods 20 317 116.70 1"3,127,208.39 exceeding P1Million deferred to succeeding period Total allowable input tax VAT Payable Less: VAT paid per returns Basic VAT deficiency To summarize, Telstar's total basic deficiency tax liability was reduced in the amount of P5,964,053.62, broken down as follows: Tax Type Basic Deficiency Income tax p 2 804 113.22 Value-added tax 3 127 208.39 WT-Expanded 32 732.01 TOTAL .. 5 964 053.62 Aggrieved, the CIR filed his Motion for Reconsideration on the February 8, 2018 Resolution. On June 4, 2018, the Court in Division denied CIR's Motion for Reconsideration for lack of merit. Meanwhile, Telstar filed a Petition for Review11 of the February 8, 2018 Resolution on March 1, 2018, while the CIR filed his Petition for Review 12 of the June 4, 2018 Resolution on June 22, 2018. 11 CTA EB No. 1797 Dockets, Vol. I, pp. 1~47. 12 Supra, note 5. {_

Telstar Manufacturing Corporation vs. CIR Page 14 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION In its Petition for Review, Telstar reiterates its argument that it cannot be in pari delicto with the CIR in the execution of the Waivers and that it did not benefit from its execution; that there was no estoppel in assailing the validity of the Waivers; that the extension of time to assess was only for the benefit of the CIR as it had submitted all the required documents on time; and that the case of Next Mobile should not apply in this case. It also insists that it is not liable for deficiency tax on overclaimed salaries of P9,266,846.88 since the ICPA confirmed that payment thereof was made to Vivian-Que Azcona and the corresponding withholding tax therein was paid to the government. It also pointed out that it is not liable for the deficiency EWT of P32,732.01 and deficiency IT on related disallowed expense of P2,326,691.88, as well as for deficiency VAT on property per cash flow of P5,610.71 and on disallowed input VAT of P2,918,401.80. Lastly, it contends that it is not liable for deficiency interest on the assessment for deficiency VAT and EWT. The CIR comments 13 thereto, asserting that the Waivers validly extended the assessment; that Telstar is estopped in questioning the said Waivers; that Telstar is liable for the IT and VAT on discrepancies on sales, IT on overclaimed salaries, IT and EWT on related disallowed expense IT on disallowed 2008 CWT, VAT on property per cash flow and on disallowed input VAT. Lastly, the CIR contends that Telstar is liable for deficiency interest on the assessment for deficiency VAT and EWT. On the other hand, the CIR in his Petition for Review contends that the Court in Division erred in cancelling the deficiency IT and VAT arising from discrepancies on sales and the deficiency IT on the disallowed CWT on the sole ground that this only came out on the FDDA. Telstar comments14 thereto, stating that the PAN, FAN and FDDA issued against Telstar are all void for failure to comply with the BIR's Revenue Memorandum Circular No. 13 Dockets CTA EB 1797, Vol. II, pp. 812-823. 14 Ibid., pp. 831-870.

Telstar Manufacturing Corporation vs. CIR Page 15 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION 36-99, which allows revenue officers only 120 days from date of receipt of the LOA to conduct audit and submit report of investigation. Telstar also claims that the FAN reveals no due date to pay the assessed amounts and no final demand was made at all. It adds that the Court in Division was correct in cancelling the assessment against it with respect to the IT and VAT on discrepancies on sales and IT on disallowed 2008 CWT. CIR filed a Manifestation15 adopting his arguments raised in his Comment, while Telstar filed its Memorandum16 on November 29, 2018. This Court rules to deny both petitions. Telstar basically argues that the Next Mobile Case does not apply on all fours in this case. This Court is not persuaded. Telstar asserts the alleged misplaced application of the Next Mobile Ruling in the case at bar. Nonetheless, it is noted that Telstar never raised the validity of Waivers when it filed its protest17 to the PAN and protest18 to the FAN during the administrative claim. Telstar never questioned the validity of the Waivers before the BIR, as well as the prescription of the CIR's right to assess it for deficiency taxes. Only upon its frustration after the administrative claim did it realize to raise the said matter before this Court. Telstar should not be allowed to benefit from the flaws in its own Waivers and successfully insist on their invalidity in order to evade its responsibility to pay taxes. 19 Telstar voluntarily executed and submitted the subject Waivers, one after the other and never raised a single objection thereto, 15 Ibid., pp. 882-883. 16 Ibid., pp. 887-933. 17 Ibid., pp. 363-366. 18 Ibid., pp. 380-383. 19 Next Mobile, supra note 8.

Telstar Manufacturing Corporation vs. CIR Page 16 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telster Menufecturlng Corporetion CTA EB No. 1879 (CTA Case No. 8900) DECISION only to impugn their validity after the issuance of the assessment on the ground that its own representative had no authority to sign the Waivers. 20 Significantly, the signatories in the said Waivers were not mere employees but responsible ranking officers of Telstar. 21 For obvious reason, Telstar should not be allowed to benefit from its own wrongdoing and should be deemed estopped from questioning the validity of the Waivers only after the assessment against it was issued.'122 Although the Waivers executed failed to present the authorities of the signatories therein, later on, the authorities of the representatives who signed the Waivers were questioned by Telstar itself, the very same entity that caused said representatives to sign such in the first place. 23 Thus, it is clear that Telstar violated RMO 20-90, which states that in case of a corporate taxpayer, the waiver must be signed by its responsible officials. 24 Tel star actually executed defective Waivers, delivered to the BIR one after the other. Following the ruling in the case of Next Mobile, Telstar allowed the CIR to rely on them and did not raise any objection against their validity until the CIR assessed taxes and penalties against it. Thus, Telstar is estopped from questioning the validity of its Waivers. Hence, Telstar cannot now invoke its above-mentioned arguments in order to benefit from its wrongdoing. 25 It is upon this omission subsequent to the execution of Waivers that constitute estoppel on its part in claiming that the Waivers are invalid. On the other hand, BIR has its own faults too, viz: 20 Hoya Glass Disk Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8115, March 8, 2016. 21 Ibid. 22 Ibid. 23 Next Mobile, supra note 9. 24 Ibid. 25 Commissioner of Internal Revenue vs. Universal Weavers Corporation, CTA EB No. 1348 (CTA Case No. 8566), February 9, 2017.

Telstar Manufacturing Corporation vs. CIR Page 17 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION "On the other hand, respondent also utterly failed to perform its duty of faithfully complying with its own issuances. She ought to ensure that all of the requirements for the execution of a valid waiver are strictly followed. Far from doing so, respondent allowed the execution of the subject Waivers without carefully verifying the authority of petitioner's President and General Manager."26 (Emphasis omitted.) Vis-a-vis the Waivers it received from Telstar, the BIR has failed twice to perform its duties in relation thereto. The BIR allowed Telstar to submit, and it duly received, two defective Waivers when it was its duty to exact compliance with RMO 20-90 and RDAO 05-01 and follow the procedure dictated thereinY Records also show that there was a reduction in Telstar's tax liabilities contained in the assessment issued by the CIR within the extended period provided in the assailed Waivers. The FAN 28 indicated a total amount of P255,371,069. 77 as alleged deficiency IT, P341,327.08 as alleged deficiency improperly accumulated earnings tax, P114,939,336.31 as alleged deficiency VAT, P2,861,287.15 as alleged deficiency EWT, and P420,276.22 as deficiency documentary stamp tax. From the said amount, it was substantially reduced 29 to P15,883,085.99 as alleged deficiency IT, P1179584.68 as alleged deficiency VAT, and P78,800.27 as alleged deficiency EWT. Upon receiving benefit from the extension of the statute of limitations, Telstar is deemed to have impliedly admitted the validity of the subject Waivers. Since it actually benefited from the extended period, thus, the doctrine of estoppel clearly finds application in the instant case. As to Telstar's contention that the LOA is invalid for failure of the revenue officer to submit a progress report of investigation after 120 days from its date of receipt by the taxpayer, to his Head of Office and surrender the LOA for 26 Supra note 2. 27 Next Mobile, Supra note 9. 28 CTA EB No. 1797 Dockets, Vol. I, pp. 369-371. 29 Final Decision on Disputed Assessment, Ibid., pp.384-385.

Telstar Manufacturing Corporation vs. CIR Page 18 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION revalidation, a plethora30 of cases promulgated by this Court is in order. RMC No. 23-09 which provides that failure of the revenue officer to request for revalidation of LOA or the expiration of the revalidation period does not nullify the LOA nor will it affect or modify the rules on the reglementary period within which an assessment may be validly issued, to wit: "1. Revalidation of LAs The revalidation of LA shall give rise to the extension of the period within which the Revenue Officer (RO) assigned to the case shall submit the report of investigation to higher authorities for review and approval, without the imposition of applicable administrative sanctions. Depending on the classification of the pending tax case, said extension period shall be equivalent to the original prescribed number of days within which to report the case under existing revenue issuances. Failure on the part of the RO to request for the revalidation of LA or the expiration of the 'revalidation period' does not nullify the LA nor will it affect or modify the rules on the reglementary period within which an assessment may be validly issued. However, this shall be considered as a ground for the imposition of disciplinary action and demerit in the performance rating of the concerned RO, including the reassignment of the case to another RO if the Regional Director, upon the recommendation of the Revenue District Officer, deems it necessary." (Underlining supplied.) It is noteworthy that RMC No. 23-09 was issued on April 16, 2009 and the subject LOA was issued on May 14, 2010 and received by petitioner on May 27, 2010. As to the contention of Telstar that the FAN reveals no due date to pay the assessed amounts and no final demand �3 Commissioner of Internal Revenue vs. Total (Philippines) Corporation, CTA EB 1616 and 1621, November 6, 2018; AFP General Insurance Corporation vs. Commissioner of Internal Revenue, CTA EB No. 1223 (CTA Case No. 8191), January 4, 2016; Bissaza Philippines, Inc., vs. Commissioner of Internal Revenue, CTA Case No. 9372, March 7, 2018; Ritegroup Incorporated vs. Commissioner of Internal Revenue, CTA Case No. 8651, January 25, 2017. L

Telstar Manufacturing Corporation vs. CIR Page 19 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION was made at all, making it invalid, a cursory reading of the FDDA, which constitutes the final demand of the CIR reads: "It is requested that your aforesaid deficiency tax be paid immediately upon receipt hereof, inclusive of penalties. This is our final decision. If you disagree, you may appeal this final decision with the Court of Tax Appeals or to the Commissioner of Internal Revenue through request for reconsideration within thirty (30) days from receipt hereof. Failure to file an appeal for reconsideration or pay the tax within the time prescribed, the assessment shall become final, executory and demandable and therefore subject to delinquency penalties pursuant toRR 18-2013." It is clear as daylight that the due date is indicated, as the deficiency tax must be paid immediately upon receipt of the FDDA. The final demand was also clear as it was stated above that such was the final decision of the CIR, i.e., to pay the deficiency tax immediately upon receipt of the FDDA. It is worthy to note that a number of CTA cases involving assessments with the same tenor of demand as what is mentioned above were not declared invalid by this Court. Thus, in the case of Composite Materials Inc. vs. Commissioner of Internal Revenue, 31 the demand was made through a request to pay the tax liability immediately with the authorized agent bank. Even in the Supreme Court case of Allied Banking Corporation vs. Commissioner of Internal Revenue, 32 the tenor of the demand was made through a request to pay the tax liability immediately, and the Supreme Court did not strike the assessment as invalid. In the case of Staedtler (Philippines) Inc., vs. Commissioner of Internal Revenue/3 the pronouncement therein with respect to the validity of an assessment having such tenor of demand is clear, thus: 31 CTA Case No. 8365, May 2, 2016. 32 G.R. No. 175097, February 5, 2010, 611 SCRA 692. 33 CTA Case No. 8431, January 20, 2015.

Telstar Manufacturing Corporation vs. CIR Page 20 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION "Section 3.1.6 of Revenue Regulations No. 12- 1999 provides that the decision of the BIR Commissioner or her duly authorized representative shall state the (1) facts applicable law, rules and regulations, or jurisprudence on which such decision is based, otherwise, the decision shall be void, and (2) that the same is her final decision. Records confirm that the Final Decision conforms to the procedural requirements provided in Revenue Regulations No. 12-1999. In the Final Decision, petitioner was requested to pay immediately its tax liability xxx and the same was respondent's final decision. It has also a statement that if petitioner disagrees. it may appeal with this Court within thirty (30) days from receipt thereof. otherwise the deficiency tax liabilities shall become final. executory and demandable. xxx" (Underlining supplied.) Thus, this Court is constrained to uphold the validity of the assessment. As to Telstar's deficiency IT on overclaimed salaries in the amount of P7,020,352.18, which pertains to the payment to Mercury Group of Companies, Inc., the Court a quo correctly ruled that there was an error in reporting the correct name and TIN in the alphalist, which, as Telstar claims, should be under the name of Vivian Que-Azcona. Telstar also did not submit additional documents to clarify the nature of the claimed expense. Whether or not Vivian Que-Azcona indeed received the purported profit share is likewise not clear. Hence, the Court must uphold the said findings. With respect to Telstar's deficiency EWT of P32,732.01 and deficiency IT on related disallowed expense of P2,326,691.88, Telstar avers that the Court a quo erred in ruling that it cannot claim the related expenses as deduction from gross income pursuant to Section 2.58.5 of Revenue

Telstar Manufacturing Corporation vs. CIR Page 21 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION Regulations (RR) No. 2-98, as amended by RR No. 12-2013, since the taxable year involved in this case is 2009 and administrative rules and regulations must operate prospectively. However, the February 8, 2018 assailed Resolution had already expounded that Section 2.58.5 of RR No. 2-98 was likewise amended by RR No. 14-2002 dated September 9, 2002, which clearly covers the taxable year in this case. In RR No. 14-2002, the Court in Division explained clearly that such RR requires withholding of tax and payment of such at the time of the audit investigation or reinvestigation/ reconsideration and since there was non-compliance therein, Telstar cannot claim the disallowed expenses as deduction from its gross income. Telstar also argues that it is not liable for VAT on sale of property cash flow of P5,610. 71 since the sale of property and equipment is not considered as part of its ordinary course of trade or business. However, aside from relying on the mere statement of ICPA that such sale of property and equipment is not considered as part of its ordinary course of trade or business, Telstar did not submit any evidence to prove or even allege that the subject property and equipment was not used in the ordinary course of its trade or business. Section 3 of Rule 13 of the Revised Rules of the Court of Tax Appeals ("RRCTA"), as amended, provides that: "xxx. The findings and conclusions of the ICPA may be challenged by the parties and shall not be conclusive upon the Court, which may, in whole or in part, adopt such findings and conclusion subject to verification." The Court is not bound by the findings of the ICPA. The ICPA Report is but a tool or guide to aid the Court in the resolution of the case. The determination of the merit or the probative value of such report is still within the province of the Court, it is free to adopt or disregard, completely or partially, the findings of the ICPA. It can even make its own

Telst11r MllnUfi!lcturlng corporation vs. CIR Page 22 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION audit and evaluation of the documents pertinent to the case presented during the trial in order to intelligently resolve the conflict brought before it. 34 Thus, the sale of property and equipment is considered to have been made by Telstar in its ordinary course of trade or business and should be subject to VAT. Telstar likewise contends that it is not liable for VAT on disallowed input VAT of P2,918,401.80 since such was based on the CIR's assessment on unsupported expenses of P42,886,053.63 that was lifted from income payments of the same amount that was not subjected to EWT. Telstar claims that such method of auditing is void since the deficiency VAT is based on unsupported evidence, while the EWT was based on non-withholding of tax. However, the Court in Division, in its Decision, actually found out that the total input taxes examined should be in the amount of P65,038,027. 78, and P20,855.82 thereof are without proper supporting documents as stated in the ICPA report, while the amount of P10,640,518.00 for input VAT from importation was further disallowed by the Court, upon examination of Telstar's submitted various sales invoices and official receipts, 35 for failure of Telstar to submit evidence to refute the CIR's findings that the purchases pertaining to such amount are unsupported, leaving only P54,376,653.96. From the remaining amount, P627,816.97 was further disallowed by the Court upon examination, due to being unsupported. The Court in Division, in its February 8, 2018, however, upheld the amount of P2,918,401.80 as computed by the CIR since the previous amount for VAT in the assailed Decision exceeded the disallowance made by the CIR. 34 State/and, Inc. vs. Commissioner of Internal Revenue, CTA EB No. 1148, July 4, 2016, citing First Lepanto Taisho Insurance Corporation vs. Commissioner of Internal Revenue, CTA EB No. 563, March 1, 2011; further cited in Phil. Gold Processing & Refining Corp. vs. Commissioner of Internal Revenue, CTA Case No. 8763, May 25, 2017. 35 Assailed Decision, p. 53. L

Telstar Manufacturing Corporation vs. CIR Page 23 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION It is likewise noted that the findings mentioned above were based on Telstar's submitted various sales invoices and official receipts before the Court. Based on the foregoing, it is unfathomable to agree with Telstar when the Court in Division had explained thoroughly that the claimed input taxes were based on unsupported expenses. Thus, this Court upholds the VAT on disallowed input taxes on unsupported expenses. As to deficiency interest, this issue has already been put to rest by this Court in the case of Takenaka Corporation Philippine Branch vs. Commissioner of Internal Revenue, 36 as regards the imposition of deficiency interest, thus: "The issue is no longer novel as the same was sufficiently discussed by the Supreme Court in Paper Industries Corporation Philippines (PICOP) v. Court of Tax Appeals, et a/. 37 The Supreme Court held that Section247(a) of the NIRC of 1997, as amended [now Section247(a) of the NIRC of 1997, as amended] 'very clearly embraces failure to pay all taxes imposed in the Tax Code, without any regard to the Title of the Code where provisions imposing particular taxes are textually located.' xxx XXX XXX XXX Thus, xxx the imposition of deficiency interest under Section 249(8) of the NIRC of 1997, as amended, clearly applies to all internal revenue taxes imposed by the present Tax Code xxx" (Italics in the original.) Therefore, the deficiency interest is correctly imposed not only on the deficiency IT but also on the deficiency VAT and EWT. 36 CTA EB No. 745, September 4, 2012, cited in E.E. Black Ltd. - Philippine Branch vs. Commissioner of Internal Revenue, CTA EB No. 1611, January 22, 2019 and 3M Philippines Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9213 & 9214, January 30, 2019. 37 G.R. Nos. 106949-50, December 1, 1995. t

Telstar Manufacturing Corporation vs. CIR Page 24 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION As to the contention of the CIR that the Court in Division erred in cancelling the deficiency IT and VAT arising from discrepancies on sales, the said Court in Division had already resolved the matter in the assailed Decision, that there was a difference between the assessed amount of P230,574.03 and P231,645.48 as per Telstar's own books of accounts, specifically its sales ledger, and its Summary List of Sales, that was unaccounted for. However, the notes to the financial statements disclose that net sales for the year 2009 amounted to P702,247,009.00 and when this amount is compared to the amount recorded in Telstar's sales ledger, the resulting difference is P231,645. 74, leaving a discrepancy of less than Pl.OO from the amount of P231,645.48 as per Telstar's own books of accounts, specifically its sales ledger. Thus, the cancellation of the IT and VAT therein is in order. As to the deficiency income tax on disallowed 2008 CWT of P17,777.44 that was subsequently cancelled by the Court in Division, it is but proper since the said CWT only reflected in the FDDA and not in the FLD. In the FLD, what were assessed were only deficiency IT and VAT with respect to the discrepancies on sales and no pronouncement was made by the CIR as to the disallowed CWT. Moreover, it must be noted that the Court in Division cancelled the said amount due to absence of breakdown of the disallowed CWT in the FDDA. Thus, the Court a quo38 correctly ruled that: "In the case of Commissioner of Internal Revenue v. Liquigaz Philippines Corporation and Liquigaz Philippines Corporation v. Commissioner of Internal Revenue, 39 xxx [i]t clearly explains: "xxx Again, Section 3.1.4 of RR No. 12-99 requires that the FLD must state the facts and law on which it is based, otherwise, the FLD/FAN itself shall be void. Meanwhile, Section 3.1.6 of RR No. 12-99 specifically requires that the decision of the CIR or his duly authorized representative on a disputed assessment shall state the 38 February 8, 2018 assailed Resolution. 39 G.R. Nos. 215534 & 215557, April18, 2016, 790 SCRA 79, 93-97. L

Telstar Manufacturing Corporation vs. CIR Page 25 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION facts, law and rules and regulations, or jurisprudence on which the decision is based. Failure to do so would invalidate the FDDA. The use of the word "shall" in Section 228 of the NIRC and in RR No. 12-99 indicates that the requirement of informing the taxpayer of the legal and factual bases of the assessment and the decision made against him is mandatory. The requirement of providing the taxpayer with written notice of the factual and legal bases applies both to the FLD/FAN and the FDDA. XXX XXX XXX To rule otherwise would tolerate abuse and prejudice. Taxpayers will be unable to file an intelligent appeal before the CTA as they would be unaware on how the CIR or his authorized representative appreciated the defense raised in connection with the assessment. On the other hand. it raises the possibility that the amounts reflected in the FDDA were arbitrarily made if the factual and legal bases thereof are not shown. XXX XXX XXX Section 228 of the NIRC provides that an assessment shall be void if the taxpayer is not informed in writing of the law and the facts on which it is based. It is, however, silent with [sic] regards to a decision on a disputed assessment by the CIR which fails to state the law and facts on which it is based. This void is filled by RR No. 12-99 where it is stated that failure of the FDDA to reflect the facts and law on which it is based will make the decision void. It, however, does not extend to the

Telstar Manufacturing Corporation vs. CIR Page 26 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION nullification of the entire assessment."" (Underlining supplied.) Thus, the absence of the disallowed CWT in the FAN and its subsequent inclusion in the FDDA without breakdown of such computation calls for the cancellation of such amount in the assessment. WHEREFORE, premises considered, the Petitions for Review are hereby DENIED for lack of merit. Accordingly, the Resolution dated February 8, 2018 is hereby AFFIRMED with MODIFICATIONS in the computation of deficiency interest and delinquency interest in view of the effectivity of Republic Act No. 10963 (TRAIN Law) on January 1, 2018 and the issuance of Revenue Regulation No. 21-201840 and shall read as follows: "WHEREFORE, petitioner's Motion for Partial Reconsideration is PARTLY GRANTED. Accordingly, the dispositive portion of the assailed Decision of this Court dated August 18, 2017 is MODIFIED as follows: "WHEREFORE, the present Petition for Review is PARTLY GRANTED. Petitioner is ORDERED to pay basic deficiency income tax, value-added tax and expanded withholding tax for the year 2009 in the aggregate amount of P25,348,408.53, inclusive of the 25% surcharge and deficiency and delinquency interests imposed under Sections 248(A)(1)(3) and 249(8) and (C) of the NIRC of 1997, as amended, respectively computed until December 31, 2017 as follows: 41 40 Regulations Implementing Section 249 (Interest) of the National Internal Revenue Code (NIRC} of 1997, as amended under Section 75 of the Republic Act (RA} No.10963 or the "Tax Reform for Acceleration and Inclusion (TRAIN Law)". 41 Section 6 of Revenue Regulations No. 21-2018 dated September 14, 2018.

Telstar Manufacturing Corporation vs. CIR Page 27 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION Basic Tax Income Tax Value-Added Tax Expanded Total Due 2 804~113.22 3 127 208.39 Withholding 5 964 053.62 25% surcharge 701 028.31 781 802.10 Tax 1 491 013.41 20% Deficiency Interest 32 732.01 April 16, 2010 to August 29, 2014 (1596 days) (basic tax x 8 183.00 .20 x 4.372 years) January 26, 2010 to August 29, 2451916.6 2 451 916.60 2014 (1676 days) (basic tax x .20 x 4.5917 years) 2871840.553 2 871 840.55 January 16, 2010 to August 29, 2014 (1687 days) (basic tax x 30256.8154 30 256.82 .20 x 4.6219 years) Total Amount due as of 5,957,058.12 6,780,851.04 71,171.83 12,809,080.99 ALJg_USt 29, 2014 1872979.384 2088787.572 21863.01876 3983629.975 Add: 20% Deficiency Interest August 30, 2014 to December 31, 2017 (1219 days) (basic tax x .20 x 3.3397 years) 20% Delinquency Interest 3978957.404 4529201.644 47538.51073 8555697.558 August 30, 2014 to December 11 808 994.91 31, 2017 (1219 days) (total 13,398 840.26 140 573.36 25 348 408.53 amount due as of August 29, 2014 x .20 x 3.3397 years) Total Amount due as of December 31 2017 In addition, Telstar Manufacturing Corporation is liable to pay delinquency interest at the rate of 12% on the total unpaid basic deficiency tax, surcharge and deficiency interest as of August 29, 2014 amounting to P5,957,058.12 for Income Tax, P6,780,851.04 for VAT, and P71,171.83 for Expanded Withholding Tax, or in the aggregate amount of P12,809,080.99, computed from January 1, 2018 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by Republic Act No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN). Petitioner's Manifestation with Motion for Correction of Dispositive Portion of Decision is NOTED." SO ORDERED. r.C:fof.i-iti:-oNN: M~,L...,.. .. '~ MINbARO-GRULLA Associate Justice

Telstar Manufacturing Corporation vs. CIR Page 28 of 28 CTA EB No. 1797 (CTA Case No. 8900) CIR vs. Telstar Manufacturing Corporation CTA EB No. 1879 (CTA Case No. 8900) DECISION WE CONCUR: Presiding Justice ~ C. ~if;;'.*o~,. ~� AEsRs~~~Pus.tUicYe JWfNITO �c. CASTANEDA, JR. Associate Justice O!Y.. ~ ....-s ~ .z_ MA. BELEN M. RINGPIS-LIBAN Associate Justice c;;~� T ~~!...__- CATHERINE T. MANAHAN Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court En Bane. Presiding Justice

REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY ENBANC TELSTAR MANUFACTURING CTA EB NO. 1797 CORPORATION, (CTA Case No. 8900) Petitioner, -versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. X-------------------------------------------X COMMISSIONER OF INTERNAL CTA EB NO. 1879 REVENUE, (CTA Case No. 8900 ) Petitioner, Present: -versus- DEL ROSARIO , PJ, CASTANEDA, JR., UY, F A S O N -V I C T O R I N O , MINDARO-G RULLA, RINGPIS-LIBAN , and MANAHAN I JJ. TELSTAR MANUFACTURING Promulgated: CORPORATION, APR 1 s� 2019 Respondent, X- - - - - - - - - - - ------------------------: - ~�--- ---- -- ~X "3.' P d/A? \. CONCURRING AND DISSENTING OPINION DEL ROSARIO, P.J .: I concur with the ponencia in denying the Petition for Review filed by the Commissioner of Internal Revenue (CIR) for lack of merit. I am, however, constrained to withhold my assent to the denial of the Petition for Review filed by Telstar Manufacturing Corporation

Concurring and Dissenting Opinion CTA EB Nos. 1797 & 1879 (CTA Case No. 8900) (TMC). It is my humble view that the Formal Letter of Demand1 (FLO) and the Final Assessment Notices2 (FAN), all dated October 16, 2013 are void for their failure to demand payment of the taxes due within a specific period. A perusal of the FLD3 and the FAN4 enclosed thereto issued against TMC reveals that they failed to demand payment of the taxes due within a specific period. Notably, the spaces for the due dates in the FAN were conspicuously left blank. Since there was no assessment notice which properly indicated the due date when the deficiency taxes must be paid, no proper demand thereof within a specific period was made. In Commissioner of Internal Revenue vs. Pascor Realty and Development Corporation5 and Commissioner of Internal Revenue vs. Fitness By Design,6 the Supreme Court emphasized that a FAN without a definite due date for payment is not valid because it negates the demand for payment. Pertinent parts of the Supreme Court's ruling in Fitness By Design are quoted hereunder: "The disputed Final Assessment Notice is not a valid assessment. XXX XXX XXX Second, there are no due dates in the Final Assessment Notice. This negates petitioner's demand for payment. Petitioner's contention that April 15, 2004 should be regarded as the actual due date cannot be accepted. The last paragraph of the Final Assessment Notice states that the due dates for payment were supposedly reflected in the attached assessment: In view thereof, you are requested to pay your aforesaid deficiency internal revenue tax liabilities through the duly authorized agent bank in which you are enrolled within the time shown in the enclosed assessment notice. 1 Exhibits R-10. 2 Exhibits R-10-a to R-10-e. 3 Exhibit R-10. 4 Exhibits R-10-a to R-10-e. 5 G.R. No. 128315, June 29, 1999. 6 G.R. No. 215947, November 9, 2016.

Concurring and Dissenting Opinion CTA EB Nos. 1797 & 1879 (CTA Case No. 8900) However, based on the findings of the Court of Tax Appeals First Division, the enclosed assessment pertained to remained unaccomplished. Contrary to petitioner's view, April 15, 2004 was the reckoning date of accrual of penalties and surcharges and not the due date for payment of tax liabilities. The total amount depended upon when respondent decides to pay. The notice, therefore, did not contain a definite and actual demand to pay." In other words, a FAN must not only indicate the legal and factual bases of the assessment but must also state a clear and categorical demand for payment of the computed tax liabilities within a specific period. Absent such demand, as in this case, the FAN is fatally infirm. Being a void assessment, the FAN bears no fruif and must be slain at sight. While the issue on the invalidity of the FAN was not raised by the parties, the CTA has the authority to rule on the same. In Commissioner of Internal Revenue vs. Lancaster Philippines, lnc.,8 the Supreme Court, citing Section 1, Rule 4 of A.M. No. 05-11- 07- CTA, or the Revised Rules of the Court of Tax Appeals, categorically declared that the CTA can resolve an issue which was not raised by the parties, viz.: "On whether the CTA can resolve an issue which was not raised by the parties, we rule in the affirmative. Under Section 1, Rule 14 of A.M. No. 05-11-07-CTA, or the Revised Rules of the Court of Tax Appeals, the CTA is not bound by the issues specifically raised by the parties but may also rule upon related issues necessary to achieve an orderly disposition of the case. The text of the provision reads: SECTION 1. Rendition ofjudgment. - x xx In deciding the case, the Court may not limit itself to the issues stipulated by the parties but may also rule upon related issues necessary to achieve an orderly disposition of the case." Based on the foregoing, this Court is well within its authority to consider in its decision the issue on the invalidity of the FAN for failure to demand payment of the deficiency taxes within a specified 7 Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010. 8 G.R. No. 183408, July 12, 2017.

Concurring and Dissenting Opinion CTA EB Nos. 1797 & 1879 (CTA Case No. 8900) period albeit the parties had not raised the same in their pleadings or memoranda. All told, I vote to: (i) DENY the Petition for Review filed by the Commissioner of Internal Revenue; and, (ii) GRANT the Petition for Review filed by Telstar Manufacturing Corporation thereby ultimately CANCELLING the Formal Letter of Demand and the Final Assessment Notices, all dated October 16, 2013, assessing it for deficiency taxes for the year 2009 for being void. Presiding Justice